After reading an article about activity-based costing in a trade journal for the furniture industry Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month Rey found that setup costs inspection costs and utility costs made up most of its overhead. Additional information about overhead follows.
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Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 6.15.
Required
Classify each of its three overhead activities as unit level batch level product level or facility level.
What is the total cost of Job 6.15 if Business Solutions applies overhead at 50% of direct labor cost?
What is the total cost of Job 6.15 if Business Solutions uses activity-based costing?
Which approach to assigning overhead gives a better representation of the costs incurred to produce Job 6.15? Explain.
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